Rich Habits Podcast - Q&A: Handling a $100K Salary, Investing with $50 / Month, and Downsizing

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Starting point is 00:00:36 This episode is our question and answer edition, which means we're taking your questions and we give you our raw feedback. These are our unfiltered answers on all these questions, Robert, we're having fun. We're not holding back. We're giving people what we think absolutely straight to the point. And they are my favorite types of episodes because we don't exactly know the types of questions you guys are going to ask us. They're just kind of all over the place. But we're having a blast doing it. And if you have a question to ask us, you can send us an email at richhabitspodcast at gmail.com or send us an Instagram DM at Rich Habits Podcast. Robert, I'm so pumped for this episode, man. Yeah, me too. I love it. These get more and more in-depth and fun every single week. And the questions

Starting point is 00:01:18 just get deeper and deeper and more complex. And I love filming these just because we don't know we're going to get from week to week. And it just is so much fun getting a lot of all of your questions and being able to dig deep and answer them and give our best shot at it. What's cool too about some of these questions is how far they've sort of evolved over the last year or so, right? I feel like in the beginning it was a lot of what's a Roth IRA or like, how do I buy a house properly or what's house hacking? Now they're just these very in-depth questions that break down people's different financial situations. So it's going to be a blast. We're going to jump into that. But before that, I want to remind you guys, we have an email newsletter. We had

Starting point is 00:01:54 open rates over 50% on last week's email. You guys are absolutely loving this newsletter, the Rich Habits newsletter. It's going to become the new weekly newsletter that you are going to be adding to your rotation on Thursday mornings. It's a really easy read. It's full of personal finance and investing info, as well as the easiest way to find curated affiliate offers that we've collected across a bunch of different companies for you guys. Yes, I'm so excited about the newsletter as well. Austin and I both get a chance to share our favorite call out of of the week and unless you're subscribed to the newsletter, you won't know what they are. So get there, sign up, get in with everybody else. We're so excited about this new weekly product and we're

Starting point is 00:02:35 confident you're going to love it as well. It is growing so quickly. The numbers and the open rates are great and we appreciate all the support. Yeah. So if you want to see what this week's call it is, be sure to click the link in the show notes below. Join 40,000 other weekly readers and check out the rich habits newsletter. Now, before we jump into the episode, I want my option traders to listen up because I want to tell you a little bit about public.com. And more importantly, have you ever thought about all the fees you're paying to actually trade those options? Because aside from regulatory fees, there's also commissions. And most platforms even charge per contract fees as well. That's what makes today's sponsor,

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Starting point is 00:04:01 Options are not suitable for all investors and carry significant risk. If you want to read the full disclosure, go check that out in the podcast description below, and this is for U.S. members only. All right, let's jump into our first question coming from Kathy S. Kathy says my kids are 18 and 21 years old, and we're trying to figure out how to best help them financially. We want to set them up for great financial future, but we're unsure where to start. They both have started their own Roth IRAs, but I only have $200 a month to invest on their behalf. So should I be giving them this money for their Roth IRAs? Should I be investing it on their behalf somewhere else? Should I buy them a house? I'm thinking about maybe ETFs. I don't even know where to start. Robert, you want to kick this one off?

Starting point is 00:04:45 Yeah, I love this idea. And it's a great question, Kathy. And congrats for really thinking about helping your kids and get them set up for financial freedom. I love it. Love the idea even at 18 and 21 years old of giving them each $100 a month in that basket of index funds through the Roth IRA. I think that is a very, very solid plan and one that I wish more parents would do because not only are you showing them and teaching them financial literacy, but you're giving them an upper hand by getting them started. And don't get discouraged on only putting in $100 a month per child because it's a start. It's a great place to be for them. They have time on their side and compound interest. So I think it's a wonderful plan.

Starting point is 00:05:28 You can always add more later or they can start adding to it, but I think it's a wonderful plan. I'm right there with you. And I really want to just hammer down what Robert said about, it's okay to do this 100. It's a start. And what's going to happen is it's going to cause the snowball effect, right? Compound interest.

Starting point is 00:05:44 So this 18-year-old, for example, if you're kicking them off by helping them invest $100 a month into either their Roth IRA or somewhere else on their behalf, it doesn't matter how the money is being invested. What matters is that it is being invested. So from 18 to 67 years old, Robert, that $100 is going to turn into $3.3 million. I mean, talk about generational wealth here, Kathy. Same thing with the 21-year-old. I'll do some quick math for you. That 21-year-old with the same $100 will be $2.3 million. So isn't it crazy to see what just three years of extra compound interest can do for one of your children? That's a million-dollar difference. So get started now, invest the money on their behalf, give it to them to invest in their own

Starting point is 00:06:23 Roth IRAs, it doesn't matter as long as it's getting invested. And just to make sure we're all in the same page on what it's being invested into, we talk about the same five ETAPs, V-O-O-Q-Q-Q-Q-G-T, V-T, V-I-M-O-A-T. Those are the five, Robert and I love, and they're going to give you that 10, 11, 12, 13% annual returns over a long period of time. I love it. Yeah, that is a very solid plan. And let's get into our next question. So this comes from Greg A. Greg says I'm a youthful 65-year-old and my children should be moving out of the house in the next five years or so. I'm starting now to think more about how to best manage my assets and investments for retirement. I own my house outright and it's worth about $430,000.

Starting point is 00:07:08 I have 1,200 acres worth of mineral rights in Texas for natural gas along with an acre of land in Orlando. My wife and I are still working and we earn about $50,000 a year combined. And I'd love some advice on how to optimize these assets as we are considering downsizing in retirement. All right, Greg, I'll kick this one off and then I'll let Robert rally behind me here. So, Greg, I really, really, really love the idea of not having a mortgage payment in retirement, right? Having a mortgage payment is fun. It's cool. It's sexy when you're in your 20s, 30s, 40s, 40s and 50s.

Starting point is 00:07:42 But when you're ready to retire, you don't want to have to still be paying on that house, that $1, $1, $1, $1,300, $3,100 a month payment that some people are. seeing with these interest rates, right? So, Greg, I love that you don't have a payment on your house. However, you did mention downsizing, and I like that idea. So as I just think about, and I'll let Robert talk about the mineral rights, but as I think about just the current situation with this house at $4.30 and making about $50,000 a year, what's important here to realize, Greg, is assuming you don't have any money in a retirement account, any money in a brokerage account, you might have to redefine what retirement might look like, right? You said you're a youthful 65 and fingers crossed,

Starting point is 00:08:19 You're going to be a youthful 75 because you might be working until then. Assuming you're able to sell your house if you do want to downsize for this $430,000, and you maybe take $250,000 or let's say $300,000 of that to make it a round number, and you buy another house outright in cash. You're now have about $100 to $130,000 to work with in the markets. So if you're able to take, let's call it, that $100,000 to $130,000 difference there and invest it into the markets and get that 10 to 12% return, you could expect, call it that $10, maybe $15,000 a year return, but that's nothing to live on in

Starting point is 00:08:52 retirement, right? So to your point, I really think you should lean into that youthfulness. You know, you don't have this mortgage payment hanging over here. You guys are taking home $50,000 a year. Maybe it's time to really buckle down and figure out, okay, how do we carve out an extra $20,000 of that $50 to invest it into the markets for the next five years? And then that money now compounds and you have this original $100. Now you've added another $100. And of course, it's been, you know, five years or so, so the markets have gone up by then. So now maybe you have $280, $330,000 invested for you in the markets. You have a paid for house.

Starting point is 00:09:24 Maybe you even take some part-time work. And when you're older, there's a lot of ways to think about this. But I think the big X factor here is what Robert's about to talk about with the mineral rights. So Robert, dig into those. Yeah, I'm going to cover all of it. So I like your situation and I think there's ways to fix it. So here, we're going to start here.

Starting point is 00:09:42 You have a $430,000 property that's paid off. you could look at doing two things, downsizing into a duplex, and then that way you could house hack and the tenant in the other side pays most of the mortgage, if not all of the mortgage. And you could implement a 1031 exchange to a lower valued property to offset your capital gains that you would pay on the $430,000 sale. So that's one wrinkle that could really set you up in a great place. The other thing you could do, and you might not want to do it because it is great that you own your own home paid off free and clear. But you could also look at selling the home,

Starting point is 00:10:21 going downsizing into a rental, have the $430K that you could then fully invest, which would really set you up at that 10 or 12 percent per year of earnings in the right investments of the basket of index funds we talk about. That is a completely different way to look at this. So you have some options. Now let's talk about the mineral rights. You didn't give us a lot of lot to go on, but let's assuming that 1,200 acres of mineral rights makes the minimum, which is generally a natural gas, around $250 per acre, that would give you $300,000 in value or profits to be able to work with. So I would look at that as, what are you doing with that money? How long have you been getting that money? And if it's new to you, what is your future plan? Could you sell the

Starting point is 00:11:11 1,200 acres for the mineral rights and the per acre value, which should set you up financially for a very long time. But there are definitely some options you can do here. Yeah, I really like the idea, too, Robert, of kind of taking that whole 430 and investing it because you could park that like an SPY or something, even if you add the 300 on top of it. Now we're talking about $700,000. Parked in SPYI or KQQQI, one of these dividend income ETFs that'll spit out $7,700 a month in tax-efficient income. But to your point now, there's that variable of rent. And rent goes up every single year. So you don't want to be renting for the next 20 years and have, you know, call it half that income now be eaten away because you don't have that stable sort of living situation. So it's really a

Starting point is 00:11:56 giving a take, you know. But what a cool situation to be in. It's specifically with these 1,200 acres of mineral rights in Texas. I've never heard of that until this question. Heck, maybe Robert, we should go in some mineral acres in Texas. Yeah, it depends if you own the acreage or if you just lease the acreage for the mineral rights. It depends. So give us more information on this, Greg, and we can go deeper on the question. Yeah, Greg, shoot us an email, Rich Habitspodcast at gmail.com. I know this was an Instagram DM. So shoot us an email and we'll dig further into that. Our next question comes from Will Will says I'm a college student looking to begin my financial journey. I'm investing $50 a month toward my Roth IRA into the ETFs you all talk about. So I want to know. What else can I

Starting point is 00:12:35 do to optimize my investing given how little money I actually have to invest. So just so we're on the same page here, Will, you know, we just did the calculations for $100 a month from 18 to 67. Even $50 a month from $18 to $67 is $1.7 million in retirement. $1.7 million after adjusted for 3% inflation in retirement, right? That's unbelievable. That's just with $50. So in my head, I'm like, okay, if I can convince Will to stick to doing this $50 all through college instead of going out to the restaurants and the bars and buying the cool shoes or whatever, but to lay that foundation that Robert and I talk about, Will's really going to be setting himself up for success, even though he's only investing $50 a month. Now, here's where things can get interesting, Will.

Starting point is 00:13:23 You're in college. You're 18, 19, 20, 21 years old. Maybe you're 22. I don't know. But you're young. You are ambitious. That's because you're listening to the Rich Habits podcast. I know that for a fact, you care about your financial situation. You want to earn more and invest more. You want to optimize. I would absolutely, and we talked about this on our last Q&A episode, there was a side hustle of a guy that was making some automations for boring businesses, but Will, I would figure out what side hustle is right for you, and I would just really, really lean in on that. If making more money is what you're really focused on, of course, focus on college, get the good grades, graduate, do your thing, get the job out of college, whatever. But, you know, when I was in college,

Starting point is 00:14:01 I was washing cars at my local car dealership. That was my part-time job. I was also repairing broken iPhones. I did that for money as a side hustle. I was also cleaning car headlights in the mall. I was doing that as a side hustle. I mean, I had so many different side hustles in college that allowed me to invest a couple thousand dollars throughout that period of time, which really set me up for success. And so, well, learn about different side hustles that could make you go from $50 a month to investing, maybe to even $100 or $200 a month, right?

Starting point is 00:14:28 if you can get us a little bit more every single month, you are going to be A-OK. Yeah, I love it. Will, we're glad you're here. Love to hear young people that are off on their financial journey and having it be a focus as part of their life. But I also want to call bull crap because at the end of the day, just like Austin said, you're a go-getter, you're diligent and you're worried about and concerned of your financial future, which is amazing that you're thinking about it at a young age. So go get a side hustle.

Starting point is 00:14:56 I don't care if it's delivery driving one day, week. I don't care if it's dog walking, washing cars, it could be virtual assistant. It doesn't matter. It could be cleaning junk at job sites. If you did that one day a week, maybe every Saturday for six hours, you go out and do a side hustle, you could then add $200 a month, $300, $400 a month into your investment portfolios. And it would set you up for life if you did that for the remaining years of college. So I love where you're at, but $50 a month, you can do better. I can do better. I know you can or you wouldn't be here listening to the Rich Habits podcast. So go out there, get that side hustle and crush it. Yeah, well, I was working from 12 to 6 on Sundays, right?

Starting point is 00:15:37 Like, that was my thing. I'd work 12 to 6 on Sundays in the mall, fixing iPhones and different electronics. And I think I made like $10, $12 an hour or something back then. It was 2016, right? And so I was able to make $250, $330 a month, depending on if I was able to hit my bonus thing for sales and stuff. And that was like just working on Sundays one day a week, right? Like, Will, you can got this bro we promise one day week's not going to kill you a couple hours you'll be just fine our next question comes from nick m nick says i'm just getting started with investing self-employed with zero dollars of debt besides my mortgage i have 25 dollars in a high-yield savings account and i'm making double mortgage payments every month to clear this massive amount of debt as fast as i can what do you

Starting point is 00:16:18 suggest my first step should be to kick off my investing journey robert you want to answer this question yeah nick i love it but here's the deal stop making the double mortgage payments we don't know what you're rate is, but let's assume it's four or five percent. I think you'd be better off having the positive arbitrage by getting that Roth IRA setup, getting invested in the market into those index funds we talk about, taking those extra mortgage payments for two, three years and really building that up so you can let compounding do its job. And then you can go back down the road later to making those double mortgage payments. At the end of the day right now, you want to be looking at it that if let's say your mortgage payment interest is 5% and you can make 10 or 11% in the market, that additional

Starting point is 00:17:02 6% year over year for you, especially because you're in your younger years, will make all the difference in the world in your wealth building. So I don't agree with the double mortgage payments unless, of course, your mortgage interest rate is 8 or 9%. Otherwise, I would be investing it into the Roth IRA to get yourself set up later. Even beyond the Roth IRA, Robert, you know, Nick, in your Instagram photo. You looked about 40. I don't know how old you are. You're on the older side. Don't be wrong, but like you're not in your 20s or 30s, right? You're like 40, maybe 45. So let's say that your double mortgage payment that you're adding extra to the principal is about $13,400. And so by pausing on those double mortgage payments that Robert was alluding to and you took that $1,300 a month and you

Starting point is 00:17:47 invested it into the S&P 500 or the ETFs we always talk about. And you did that for five years. You'd have about $120,000, right? So you have your $100,000 base already built up in a short five-year period on that just double mortgage payment that you're already doing. And then even, which is so cool, Nick, if you, let's say you were 45, right, you did this from 40 to 45, you pause the payments. Now you have this $120,000 nest egg. If you don't touch that $120,000 until you're 67 years old, so let's call it 20, 22 years here, $1.6 million in retirement, right? And that's just because you did this one thing that Austin and Robert told you to do for five years, and now you've got this guaranteed $1.6 million in retirement, but you wanted to do these double payments because you wanted to get rid of the debt.

Starting point is 00:18:32 The thing that people forget about is like, this $1.6 million in retirement is going to make you money. Having a paid off house only saves you money, right? It doesn't add to your bank account. It just saves money coming out of your bank account. But what if you don't have anything putting money in the bank account? What if the only way you're making money and adding money to your bank account is with earned income, trading time for money. This $1.6 million, you don't have to trade any time for the money it's going to make, right? It's going to spit out $150, $200,000 a year consistently because of the stock

Starting point is 00:19:02 market, or even SPYI. This will be a lot of money every year with just that. And so that's what we're trying to get you to understand, Nick, is that it's, of course, a great idea to pay off your mortgage. I've got a 6.7% interest rate on my mortgage. It makes me want to throw up. I hate paying on this interest every year in my mortgage. So I want to pay it off, but it's only like 300 grand. But what I'm trying to get out here is that I know that. I know that. that I've got other investments making me money. So when I save the money when I pay off my mortgage, it'll be a really good balance, right? I've already had my hundreds of thousands invested.

Starting point is 00:19:29 But, Nick, you said that you are just getting started with your investing journey, right? So you don't have the extra kind of addition to your bank account through the capital appreciation, the portfolio income that you could make. And so we're trying to say, before you think about paying off a mortgage with double payments every month, let's go build our base, right? Let's go build that $50,000,000 base that will then grow into over a million. million dollars in retirement because you can always pay your mortgage off, dude. You can't always use compound interest to grow into the millions. Austin, I think you crush that. It's a really,

Starting point is 00:20:01 really good breakdown. And, you know, Nick, you just have to look at it. You have a lot of options here. We just like to always see people maximizing their gains. And it's tough for people to understand that when you have that much equity trapped in a home, you really can't do anything with it until you sell it. So that is one of the keys of why we're always telling people don't pay down your mortgage unless it's a high interest mortgage and get that money optimized. So Austin, I think you crush that one. Earlier in the show, you heard us talk about the investing platform public.com. That's where you can trade options with no commissions or per contract fees. And you get a rebate of up to 18 cents per contract traded. Nerd wallet recently gave public five out of five stars for options

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Starting point is 00:21:18 and it won't be a foreign language to you. So all you need to do is sign up for our webinar on June 4th. There is a link in the show notes below. And as always, it is free of charge. I can't wait for the webinar. Robert, I am going to be learning alongside you here. And of course,

Starting point is 00:21:35 I've traded some options. You know, I've had some fun with my options trading in the past. I made a couple hundred bucks recently on some on cloud options. They crushed their earnings, which is cool. But yeah, maybe I can make,

Starting point is 00:21:45 you know, a couple hundred, couple thousand after I. Well, wait a second. Let me interrupt you right there. Tell the audience what you would have made on the Vital Farms play you were going to make and didn't make. Dude, that was crazy. So some of these option contracts, right, which we'll learn more about in the webinar.

Starting point is 00:21:59 But essentially, options are like a levered bet on the upside or the downside. So you're essentially putting a 100x leverage on a position if you want to think it's going to go up or down, right? So is the stock going to go up? You're going to bet a lot that it is or a lot that it's not. And so Vital Farms, which is this egg farm company, Robert's been. and using and investing in for about a year and a half now. Their option contracts, I think the numbers were, if someone had bought $1,000 worth of their option contracts,

Starting point is 00:22:29 I don't know, was the $35 strike or the $40 strike. I forget what the actual strike price was there, but $1,000 would have turned into $180,000, which would have been insane, Robert. I didn't do that. I didn't know to do that. But hopefully after this webinar, I'll be able to find those opportunities a little bit better

Starting point is 00:22:45 and make some moves on them, which would be really, really fun. So hopefully you guys can join us on June 4 for this Options webinar with public, where we learn all about these different trading strategies and how to best use options is not just a way to potentially make some educated bets and educated guesses on the stock market after we've built our base, but also to hedge our portfolio in times of volatility. Yeah, I love it. And we can't win them all, but at least we were both early to the Vital Farm stock.

Starting point is 00:23:13 I love the story. And it's just another case study. that in every market condition, you can find winners if you know where to look. I love it. Now, our next question comes from Ishawara S. I really hope I said that right. I'm sorry if I didn't. She says, I'm 27 years old.

Starting point is 00:23:30 I have $68,000 in student loans at a 5% interest rate. I have $1,500 in my Roth IRA and $23,000 in my Roth 401k. I make $100,000 a year. How should I go about handling my money? What would your suggestions be? the first thing I would do is I would create an honest budget, right? You're 27. I just turned 28. I was 27 two weeks ago. I live and breathe by my honest budget. And why we call it the honest budget is because a lot of us make a budget, right? We have the Excel spreadsheet. We've got the app or we've got the

Starting point is 00:24:06 notes tab, whatever we have on our phone. But we don't actually hold ourselves accountable to that. And I think what's really important and it's a maturity thing. It really is, Robert. You have to hold yourself accountable to these numbers. Oh, I already spent my $250 of fund money this month or my clothes budget or whatever this was. I can't go and buy more shoes or can't go out and buy more. So you have to hold yourself accountable. You have to be an adult. You have to be a mature adult and say, I am going to delay my pleasure. We haven't made a whole episode about this, Robert. So again, make the honest budget. I can ramble about that forever. First thing I would do there, figure out all the money that's coming into your bank account. So from this 100,000 a year,

Starting point is 00:24:44 you're looking at about $8,000-ish dollars a month, maybe $7,000 a month, depending on what state you live in there. So of this amount that's coming into your bank account every single month, figure out what your fixed expenses are, student loans, rent, utilities, groceries, right, things you have to pay to survive and to stay current. And then your variable expenses going out to eat, vacations, new clothes, insert fun money idea here, whatever that variable expense might be for you. And then one, make sure that you have some wiggle room there.

Starting point is 00:25:14 But two, also make sure that if the wiggle room is not there, you are cutting back on those unnecessary expenses, right? You don't always have to go out to Air One and get the $23 smoothie. You don't have to always go on that $4,000 vacation every year, right? So that's what we're trying to figure out here with your budget. And once you find that margin in your budget, okay, great, let's figure out what that number is. And let's now also figure out how we can get that Roth IRA up a little bit, right? You're still young.

Starting point is 00:25:41 You're in your 20s. If we can start maxing out this Roth IRA, at least for the next couple of years as we build our base, right? We want to get to at least 50,000 here in your 20s, if not early 30s. So if we can max out that Roth IRA for a couple years, the Roth 401k is still rocking and rolling. I would really focus on getting that built. Once it's built, I would then flip the focus to start paying down some of those student loans. I wouldn't do it first because, again, we just talked about that with Nick M. in his situation. right we want to make sure that we have money working for us before we're paying off debt that's

Starting point is 00:26:14 taking money out of our bank account so it kind of offsets each other there so again honest budget find the wiggle room in your budget start rocking and rolling with that roth IRA congrats on making a hundred k a year at such a young age that's wonderful and then i'd really start inching toward that 50,000 you know sort of base that we talk about here before you begin to aggressively pay off these student loans yeah i love it and the honest budget is very very critical and once that's complete and you get that debt to income ratio figured out that Austin alluded to, then it's really just all about maximizing what you can put away every month and sticking to the budget.

Starting point is 00:26:49 We like to see 15 to 20 percent, but whatever you can do realistically, we'd be happy to see just because you have to let compound interest do its job. And at 27 years old, you have the great benefit of youth on your side. So the more you can get put away now, the less likely it is you'll be a greeter at one. Walmart later on. So that is the goal here is to build the base early and often like we talk about all the time. I mean, I know we just keep giving these examples of what numbers could turn into, but at 33 years old, right? So let's call it in six years, five or six years, depending on where you are at 27.

Starting point is 00:27:24 This $50,000 base that we're kind of talking about here, Robert, could be worth $2.8 million in retirement if she doesn't touch it again, right? Just 50,000 invested 33, forget about it for 34 years until 67. Congrats. You now have $2.8 million. Like, that's what we're trying to be focused on versus taking $68,000 and paying off your student loans, right? That might take you four or five, six years, and you've lost out on these crucial years of compounding.

Starting point is 00:27:51 So want to make sure you get that base built. Want to make sure that you have the honest budget set up. And then once you've done that, pay off the student loans, right? You've got the 2.8 already guaranteed here for you. Pay off some student loans. Then maybe it's time to think about buying your first house. If that's house hacking, if that's a duplex, if that is maybe a single family home, I really don't know what your situation is going to be then, right?

Starting point is 00:28:07 That's five, six, seven years in the future. But get that honest budget working for you. I love it. Our next question comes from Jesse S. Jesse says, I'm 32 years old. I have 63,000 in a traditional IRA, 19,000 in an online brokerage, $7,000 in crypto, $5,000 in a high-yield savings account, and I'm $12,000 in credit card debt.

Starting point is 00:28:28 My dad has always said to invest through a traditional IRA so I can write off the contributions against my taxes. So my question is, do I move this 63,000 into a Roth IRA like you all suggest? Or do I just keep the money there and begin contributing directly to a Roth IRA from here on out? Additionally, out of what account should I pay off my high interest credit card debt? Because you guys always say, I can't out invest high interest credit card debt. What a good question. Robert, I'll let you kick us off. Yeah, this is a great question, Jesse. And you have some wiggle room. So here's what I would do because as Austin always alludes to, you can't out-invest high-interest debt. So I think what I would start with is I would probably take half of the crypto, assuming that you're probably up a bunch if you've been listening to us all along.

Starting point is 00:29:12 So I would take half of the crypto and I would probably take the rest from the online brokerage account. I would dump what you can in there to be able to get these credit cards paid off. And then thirdly, I would look at a second job, maybe one or two days a week to be able to then kind of replenish the accounts as soon as you get the credit cards paid off. That would be the strategy that I would implement that I think is the best to get you out of this high interest debt quickly and then also get some money to replenish. And I think what's really important to remember here to Jesse is that, you know, you've got this online brokerage. I'm not sure if it's ETFs or single stocks. You've got this cryptocurrency. I mean, obviously you can't out invest high interest debt.

Starting point is 00:29:53 We don't want you to pull anything from your high yield savings. It's only five grand. You probably have a family at 32 years old. So you want to have some wiggle room and room between you and life with that high yield savings. So being able to liquidate, let's call it, eight or nine thousand out of the online brokerage account, two or three, maybe four thousand out of the crypto. You're going to pay off the high interest credit card debt. But more importantly here, you're going to really have a conversation with yourself and say, why am I $12,000 in credit card debt? What's going on? Is my family overspending every month? Was there a tragedy? And I had to, like, what caused this $12,000 of credit card debt because, you know, we talk about not investing and pulling the investments

Starting point is 00:30:31 to pay it off like blah, blah, blah, that's great. But it's not great if in nine months you're back to $12,000 in credit card debt, right? We don't just want to treat the symptom. We want to treat the cause, right? And the cause of this credit card debt, I don't know what it is. Only you know what that is. And of course, if it was a one-off tragedy, I had to go to a funeral, something crazy happen, I get that.

Starting point is 00:30:48 But if it's because you guys have that lifestyle creep or you're trying to keep up with the Joneses or you guys don't have an honest budget, right? that's a completely different story. So get that figured out. And then Jesse, to answer your question about the traditional IRA, oh, it's a tough one. I, at your age, you're still so young, you have 30 more years of investing. I would honestly convert the traditional IRA into a Roth IRA because Jesse, I don't know what the tax brackets are going to be like in 30, 40 years when you actually have to pay taxes on this, what will eventually become millions of dollars, right? Right now, Joe Biden's been talking about some capital gains taxes on earners that make, you know, however much money,

Starting point is 00:31:28 I get that. But it's a slippery slope until, oh, you're now paying capital gains if you're, you know, profiting on a trade over 50,000 or 100,000 or whatever that number might be. So I just want to make sure that we're all on the same page that the reason Robert and I enjoy the Roth IRA over the traditional IRA right now is because we have a very clear understanding of what we're paying in taxes versus I don't know what the tax brackets are going to be like in 40 years. I just don't. I would assume they're going to be higher, considering the deficit that we're in right now as a country, because that's the only way they're going to make more money is through taxes. But like, I just don't know what that is. And so I want to make sure that I'm paying my taxes now. Don't have to worry about some looming tax man that's going to come, you know, get me in retirement and just get that out of the way. And then once you've made that conversion, Jesse, I would just continue to sort of deposit and invest through that Roth IRA into the five ETFs we talk about. Yeah, I love it. I think it's a great breakdown and just really helpful. And Jesse, you're doing great. some small tweaks to make and get you on the right track. You're crushing it, Jesse.

Starting point is 00:32:27 100% dude. 32 years old. You got your base built, certainly working toward that. Awesome, awesome base in your IRA and, you know, obviously the credit card debt. We're going to take care of that. But, dude, you should be so proud of yourself. You're crushing it. Last question here comes from Jake B.

Starting point is 00:32:41 Jake says I have $140,000 sitting in the public high yield cash account because I'm in the immediate market to buy a house. However, I'm toying with the idea of parking some of that money into S&C, SPYI or QQQI so it can earn some extra yield. What do you guys think about this idea? I need the money, though, it would be pretty liquid in case I come along a really good deal and I need to act fast. So Jake, just so we're on the same page, right?

Starting point is 00:33:05 SPYI and QQQI both track the indices of the S&P 500 and the NASDAQ. And those indices can have drawdowns, right? Where a high-yield cash account, high-yield savings account on public doesn't have any drawdowns. It only goes up in value because you get paid interest. I would say if you're in the immediate market to buy a house, and this goes for anyone, right? There's no need to park your money in the markets, if that's SPY, KKK, Kukukukwi, or V-O-O or whatever else. Because, I mean, Jake, the S&P 500 went down 5% in the month of April. And if you had that $140,000 in the markets and it went down 5%.

Starting point is 00:33:42 Congrats. You lost 10 grand of your buying power, dude. So that's what we're talking about here, right? SPYI and KKKKKY obviously are less volatile. I get that. You earn the yield. It gets paid to you every month. That's great.

Starting point is 00:33:53 But it's still an investment. And investments go up and down in value over time. And so we just want to make sure if you're in the immediate market to buy a house, like pretty liquid in case I come along a deal and I need to act fast, I would not have it, you know, have the exposure to lose 10,000 of that and a week or two, right? Just not a good idea. But this now goes to answer the question for other people that are like, well, I'm saving for a house and I'm doing, you know, $100 or $500 a month for a down payment.

Starting point is 00:34:16 And at that rate, I'm not going to have my down payment saved for five or six, seven years. Well, that's the case. Park your money in the markets, right? Put it to work, grow it, right? You need to do that. And that's the only way you're going to be able to buy a house, considering how houses have gone up in value so much. But like Jake's situation here, I wouldn't do it, man.

Starting point is 00:34:31 I think it's a little bit too much volatility for your appetite. But Robert, I want to hear your perspective. Yeah, I think the key takeaway here is the word immediate market to buy a house. If he said, I'm saving to buy a house and I have it parked, I agree with you 100%. I wouldn't do that. I'd have it in the markets. But the word immediate means he's looking daily.

Starting point is 00:34:50 He's on the hunt. he's probably got a real estate agent out there looking. So I love the strategy of having it sitting in the public high-yield cash account because so many people that are on the house hunt leave their money sitting in a checking or a savings account making nothing. So this is very, very intelligent, having it in there making that 5.5% and a quarter percent because also your gains are not taxed from a state or a local level on that money with public. So I really, really like that.

Starting point is 00:35:17 So I think it's a great question and a really good strategy in Austin. and I think you covered both sides of the equation of what to do. And I really like your thinking here, Jake. Yeah, I mean, Jake's getting an extra $600 a month right now, just parking it in that high-yield cash account, which, by the way, if any of our listeners aren't yet using Public's high-yield cash account to earn extra yield on their savings, they just have it parked in a checking account or cash under their mattress.

Starting point is 00:35:42 Head over to public.com slash rich habits. Scroll down and open up your public high-yield cash account. And I think you get a bonus of maybe $10 or $20. So go check that out. Everyone, thanks so much for tuning in to this week's episode of the Rich Habits podcast question and answer edition. Be sure to join us on June 4 at 4 p.m. Eastern Time for our exciting options trading webinar with public.com's option trading experts. Don't forget to sign up for the Rich Habits newsletter. 40,000 of you are part of that. It's a growing community. We're adding hundreds of emails every single day. It is so exciting. And we can't wait to grow this into a massive. community do massive giveaways. We're already sharing our callouts of the week exclusively to our newsletter subscribers. So be sure to go check that out. Again, as always, we appreciate each and every one of you. However, we'd love to see more of those five-star reviews. We did the math today. And there are still 55,000 of you, you know who you are that have not left us that five-star review. We would appreciate it.

Starting point is 00:36:44 It helps us grow. Keeps us at the top of the charts. And is great for our business. And it's free of charge. It takes you a couple seconds to give us a glowing review. And again, thank you all for following along on the Rich Habits podcast and the community we're building. We are so, so excited for the future. Thanks, everyone. And have a great rest of the week.

Rich Habits Podcast - Q&A: Handling a $100K Salary, Investing with $50 / Month, and Downsizing

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